Advance Authorization Scheme : Eligibility, Exempt Duties, Export Obligation

It is always preferable to maintain a favourable balance of trade, i.e., the value of exports should be greater than the value of imports. The government has introduced various schemes to boost exports made by the country. All export and import-related activities are governed by the Foreign Trade Policy (FTP), which is aimed at enhancing the country’s exports and use trade expansion as an effective instrument of economic growth and employment generation. The present Foreign Trade Policy (2015-2020) aims to keep in line with the ‘Make in India’ vision and support exports made by Special Economic Zones (SEZs), Export Oriented Units (EOUs), etc. It also contains various export promotion schemes which involve either the exemption or remission of customs duty. The Advance Authorization Scheme is one such export promotion scheme.

What is the Advance Authorization Scheme?

The Advance Authorization Scheme is a scheme where the import of inputs will be allowed to be made duty-free (after making normal allowance for wastage) if they are physically incorporated in a product which is going to be exported. An export obligation is usually set as a condition for issuing Advance Authorization.

Duties exempt under the Advance Authorization Scheme

The inputs imported are exempt from duties like Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping duty, Safeguard Duty and Transition Product-Specific Safeguard duty, Integrated tax, and Compensation Cess, wherever applicable, subject to certain conditions.

Duty-free importable items under the scheme

The following items can be imported without payment of duty under this scheme:

• Inputs that are physically incorporated in the product to be exported after making normal allowance for wastage
• Fuel, oil, catalysts which are consumed or utilized to obtain the export product.
• Mandatory spares that are required to be exported along with the resultant export product – up to 10% of the CIF value (Cost, Insurance and Freight) of Authorization
• Specified spices would be allowed to be imported duty-free only for activities like crushing, grinding, sterilization, manufacture of oil or oleoresin and not for simpler activities like cleaning, grading, re-packing, etc.

Eligibility for Advance Authorization

The Advance Authorization Scheme is available to either a manufacturer exporter directly or a merchant exporter tied with a supporting manufacturer. The authorization is available for the following:

• Physical exports
• Intermediate supply
• Supplies made to specified categories of deemed exports
• Supply of ‘stores’ on board of a foreign going vessel/aircraft provided that there are specific Standard Input Output Norms (SION) in respect of items supplied.

The validity of Advance Authorization

Advance Authorization is valid for 12 months from the date of issue of such Authorization. In the case of deemed exports, the Authorization is linked to the contracted duration of project execution or 12 months from the date of issue of such Authorization, whichever is more. However, the export obligation may be fulfilled within 18 months from the date of issue of Authorization or as notified by the DGFT. Unless specified, the export proceeds should be realized in freely convertible currency.

Actual user condition for Advance Authorization

The Advance Authorization issued and the materials imported thereunder will be with actual user condition. This means that the actual user alone may import such goods. The authorization will not be transferable even after completion of export obligation.

Grounds for issuing Advance Authorization

Advance Authorization can be issued for inputs used in the product that is to be exported on the basis of the following:

1. Standard Input Output Norms (SION) notified: The Director General of Foreign Trade (DGFT), on the recommendation of the Norms Committee, issues standard norms that define the amount of input required in the manufacture of a unit of the output product that will be exported. It is available for a wide range of products.
2. Self-declaration: Sometimes the SION is not available for a particular product. In such a case, an application may be made to the Regional Authority who will issue the Advance Authorization upon review.
3. Application prior to fixation of the norm by the Norms Committee: Another option available to an exporter where the SION is not defined is to make an application to the norms committee, requesting the same. After providing all the required data to the norms committee, the committee shall endeavour to either fix these norms or provide ad-hoc norms on the basis of the application made. Such ad-hoc norms are valid for one authorization only and no repeat authorizations can be issued.
4. Self Ratification Scheme: Advance Authorization under this Scheme is available only to an exporter who holds the Authorized Economic Operator (AEO) Certificate under Common Accreditation Programme of CBEC. This Scheme can be opted for when there is no SION or valid ad-hoc norms for an export product and also where, SION has been notified, but the exporter wishes to use additional inputs in the manufacturing process. Ratification by the norms committee is not required under this scheme and the regional authority may issue Advance Authorization upon fulfilment of the relevant conditions.

Annual Advance Authorization

Subject to certain conditions, where an item is specified in SION, Advance Authorization can be issued for the annual requirements. It is not available on a self-declaration basis. Exporters need to have a past export performance in at least two preceding financial years, in order to be entitled to such authorization.

Calculation of Value Addition (VA)

Under Advance Authorization, the minimum Value Addition to be achieved is 15%, except for physical exports for which payments are not received in freely convertible currency and other specified export products. For tea, minimum Value Addition is 50% Where certain items are supplied free of cost by the foreign buyer, its notional value will be added in the CIF value of import and FOB value of export for the purpose of calculating Value Addition. Irrespective of the currency of realization, Exports to SEZ units/supplies to developers/co-developers would be covered.

Export Obligation

The whole reason behind allowing duty-free inputs is to boost exports. The entity will incorporate these acquired inputs into a product so that it may be exported. Export Obligation (EO) in the case of Advance Authorisation is the value of export that needs to compulsorily be achieved within a prescribed time period. The EO is usually mentioned in the Authorisation issued. After achieving the EO, the entity has to provide evidence of the same. Not achieving the EO in the prescribed time period could result in penalties. Other export promotion schemes like the Export Promotion Capital Goods (EPCG) Scheme have different conditions when it comes to the export obligation.